This paper analyzes whether an investment strategy where firms with good corporate governance are purchased and firms with bad corporate governance are sold would result in abnormal returns in the Korea stock market. We also check how good corporate governance can lead to a better financial decision in corporate management by checking the effect of corporate governance on the cumulative abnormal returns on dividend announcements. We finally identify those corporate governance mechanisms that contribute more to the enhancement of firm values through value increasing financial decisions. Empirical analyses using cross-sectional and time series models show that purchasing the stocks of the firms with good corporate governance and selling those stocks with bad corporate governance results in abnormal returns. The ex-post positive and significant abnormal return on corporate governance based investment strategy suggests that the stock market is not fully reflecting the value of good corporate governance in the current stock prices. We also find that good corporate governance is positively correlated with the abnormal returns on dividend announcement confirming our conjecture that better corporate governance leads to better financial decisions. Among corporate governance mechanisms, independent board of directors, transparent disclosure system, and higher payout policy contributes to firm values.